Section 2. Motorization and Liberalization of Trade and Capital

Item 2. Liberalization of Car Imports

After World War II, Japan gradually rejoined the international economic community, for example by setting an exchange rate of 360 yen to the dollar. It also selectively brought in foreign investment and technologies while keeping external trade under strict control. Then, in 1952 when the San Francisco Peace Treaty came into force, Japan joined the International Monetary Fund (IMF1) and also gained provisional membership in the General Agreement on Tariffs and Trade (GATT2) in 1953. However, Japan was still recovering economically and was not yet in a position to completely fulfill the obligations required by the IMF or GATT. Therefore, special conditions were attached to its membership that allowed Japan to restrict imports and control the yen exchange rate based on its international balance of payments.

Subsequently as the major European nations gradually restored the exchangeability of their currencies and trade and exchange within Europe began to be liberalized, pressure began to mount on Japan to also liberalize its trade and exchange. Therefore, in January 1960, the Japanese government established the Trade and Exchange Liberalization Promotion Cabinet Conference, through which it drew up a basic policy for trade and exchange liberalization, and developed the Trade and Exchange Liberalization Plan in June of the same year.3

As part of its major move toward a more open economic system, Japan liberalized imports of completed trucks and buses in April 1961. The timing for liberalizing imports of completed passenger cars was delayed because Japan's production volume was much smaller than those of foreign automakers and Japanese automakers lacked price competitiveness, among other factors.

Meanwhile, in May of the same year, with the goal of strengthening the international competitiveness of Japanese-made passenger cars, the Ministry of International Trade and Industry (MITI) set down its Plan for Organizing Passenger Cars into Three Groups4, which divided Japanese passenger car manufacturers into the following three groups:

  1. 1.Mass-produced car group
  2. 2.Sports car and luxury car group
  3. 3.Minivehicle passenger car group

Each group was to consist of two or three automakers. The announcement of this plan carried a profound impact, heightening motivation for reassessing Japan's industrial structure itself.

Against this background, the Industrial Structure Investigation Committee, established as an advisory body to the MITI minister, created a passenger car subcommittee in April 1962, which began surveying and researching future demand for passenger cars and international competitiveness. Based on the resulting research, a passenger car policy special subcommittee was also established as a specific policy evaluation body, which returned the following recommendations in December of the same year5:

  1. 1.It is essential to establish mass production structures before liberalization occurs, and therefore partnerships and mergers must be promoted.
  2. 2.The Japanese government must provide funds to automakers that can be expected to derive benefits of economies of scale.
  3. 3.The prices of domestically produced cars must be lowered and their performance must be improved.

Separately from these moves by the Japanese government (including those by MITI), most Japanese automakers felt that they would rather go as far as they could on their own to strengthen the international competitiveness of their passenger cars. Therefore, they hurried to expand their plants dedicated to the production of passenger cars and twice reduced their prices-in September 1963 and June 1964 (with some more in September of that year)-for a total reduction of around 10 percent. They also made strenuous efforts to improve the performance of their passenger cars through numerous redesigns.

These efforts by Japanese automakers clearly paid off. The import quota for foreign cars was increased beginning in the second half of the Japanese government's 1963 April-March fiscal year and a system was adopted beginning in fiscal 1964 of unrestricted allocation (with the exception of exports from just a few countries). Nevertheless, the number of imports increased only slightly from 11,703 units in fiscal 1963 to 13,577 units in fiscal 1964, accounting for less than 3 percent of the total Japanese car market.

Witnessing this healthy growth of the Japanese automotive industry, the Japanese government took the bold step of liberalizing imports of completed passenger cars on October 1, 1965, despite having some concerns about Japan's passenger car production volume and the sizes of its automakers.

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